As mentioned in the last article in this series, investing or speculating in real estate is (if correctly done) the easiest way to get rich in this absurd city of Hong Kong. So it is not surprising then that the richest people in Hong Kong are all making mega bucks by being property developers, or property investors (landlords). They might not have first started out as a real estate man, but if they made a timely move, they would be the winner.

Readers should also be reminded that Sino Land (83.HK) bought a site at record price in 1997 (the project is now known as Island Resort, 藍灣半島), which almost brought Sino Land into bankruptcy. Consciously or unconsciously, many property developers in Hong Kong have over years turned into conglomerates so that they would get the benefit of diversification, reducing the overall business risk.

Notable example, although not consciously motivated by diversification initially, was Cheung Kong (1.HK) acquisition of its stake in Hutchison Whampoa (13.HK). Hutchison Whampoa was under financial distress, thus Hongkong and Shanghai Banking Corporation (5.HK), its main creditor, took equity stake in the company, and later the stake was sold to Cheung Kong. Now as we all know, Hutchison Whampoa controlled telecommunication business "3" and Hongkong Electric (6.HK). It also controlled Parknshop, Watson's, and Fortress Electronic stores.

Although less of a full-blown conglomerate like Hutchison Whampoa, Sun Hung Kai Properties (16.HK) has 65.19% stake in Smartone Telecommunications (315.HK), which provides mobile phones and wireless data services in Hong Kong. Through Transport International Holdings (62.HK) , it also operates KMB, a major bus operator. It also operates toll roads, car parks, and ports. Henderson Land (12.HK) also operates whole host of non-property businesses. These include Hong Kong & China Gas (3.HK), Hong Kong Ferry (50.HK), and more recently, the family acquired TVB.

Although their British counterparts (or "Hong", 洋行) are now not as crucial as these Hong Kong Chinese enterprises, we still have some of the British conglomerates like Swire Pacific (19.HK) and Jardine Matheson (JARD.SI) well established in Hong Kong as they were developed into huge businesses largely through investing in Hong Kong real estate, and at the same time investing in other lines of businesses. For instance, although it started out as a trading company, Swire earned their pre-eminent status as a major Hong Kong property company by their development of Tai Koo Shing, Tai Koo Place, Pacific Place, and Festival Walks, and of course, it is a major shareholder of Cathay Pacific (293.HK).

Hongkong Land (HKLD.SI), and associate of Jardine, was the first major property developer since the beginning of Hong Kong under British Rule. It is currently the single landlord who owned most floor area in Central Grade A Office Building. Jardine also indirectly controls Wellcome, the supermarket chain and the only serious competitor of Parknshop, through Dairy Farm (DAIR.SI), not to mentions Seven-Eleven and Mannings.

There are some legitimate reasons for the dominance of big real estate company. Because of the "high land price" policy and the curious tendency for Hong Kong people to favour large housing project, these factors effectively rule out small property companies to participate in real estate development in any meaningful ways. Inevitably, the riches got richer, and it is absolutely no surprise that the riches would get more powerful over time, making acquisitions of companies that were outside of their core businesses and build up their commercial empire.

In some other lines of businesses, like telecommunication, require substantial capital investment in the initial period, which also makes the business not suitable for small companies (and as the matter of fact, Hutchison Whampoa's 3G businesses are still loss-making). There might also be cases where there is economies of scale, so that the bigger the business is, the more likely you are going to win.

This is, to me, the root of the problem of the "anti-riches" emotion which are boiling in nowadays Hong Kong. Wealth is concentrated by a few families as they made huge money from the real estate businesses and entered into other markets. Most of the markets they are in are of an oligopoly market structure, which left consumers with little choice but to pay.

The whole development is rather natural I would say, in a sense that the stronger ones survive and weaker ones left the market, leaving only a few strong ones remain on the market. With less competitors, they get even stronger, so strong to a point where they effectively heighten the barrier for new entries because they have got very powerful. The trouble is, given what we know about monopoly and oligopoly, shouldn't there be a proper competition law or antitrust law to be put in place to foster competition in the marketplace?